Tanzania passes budget 2015/16 as shilling falls further

This is the consequence of the market hitting back and
sending the shilling close to the 2,500-mark against the dollar after a
simple majority endorsed the budget in Dodoma yesterday.

As lawmakers from CCM used the tyranny of numbers
to overwhelmingly pass the budget without any changes, the shilling
surged to a record high, trading at Sh2,400 to the US dollar.

This
development came as defiant Finance Minister Saada Mkuya (pictured with Hijab) told the House
there was nothing the government could do. All major currencies in
Africa are in freefall, according to the minister, thanks to the
stronger dollar.

Analysts predicted earlier that the shilling would
reach 2,500-mark against the dollar in October but, judging by the
trend, there is a strong possibility that it could surpass the earlier
prediction and rise to Sh3,000.

The opposition voted against the budget, insisting
that it was burden to the business community and ordinary citizens. But
the CCM lawmakers were joined by three lawmakers from the
opposition--Wawi MP Hamad Rashid (CUF), John Cheyo (Bariadi East-UDP)
and John Shibuda (Maswa East-Chadema).

Virtually all MPs proposed that the government
change its decision to raise the fuel levy in the next budget but Ms
Mkuya spent time convincing the MPs that the proposed increase should
stay because it was designed to collect Sh276 billion for rural
electrification.

The minister spent an hour responding to the
concerns the lawmakers raised before they passed the Sh22.5 trillion
budget that was tabled on June 11, giving the government the green light
to start implementing the plan on 1 July. Ms Mkuya had a rough time of
it convincing the MPs to endorse the budget, though.

Her claims were totally unverified, with no
evidence that lower consumption of kerosene was caused by the wider use
of electricity.

Had that been the case, kerosene imports would have
dropped by almost 80 percent. According to independent data The Citizen
obtained, over 7.6 million households were using kerosene as their
source of energy in 2010.

Ms Mkuya also spent time explaining the shilling’s
depreciation against the US dollar, saying that the American economy
was currently stronger and that was why many currencies had become
weaker.

Because the country was approaching the next
General Election, she added, many foreign investors were withdrawing for
fear that the chaos experienced in other African countries could also
flare up here. But she was optimistic that the shilling would stabilise
because the Bank of Tanzania (BoT) governor had taken steps to stabilise
the shilling.

Another freefall

The shilling changed hands at Sh2,208/Sh2,400
against the greenback in commercial banks yesterday, extending its
freefalling spree to new levels from the Sh2,197/2,380 on Monday.

This is happening at a time when Parliament
unanimously endorsed the budget unchanged despite the fact that it has
provisions that will trigger a rise in the cost of living and pile more
pressure on the Shilling in a country where fuel accounts for a good
chunk of the import bill.

BoT data indicates that the country may have imported oil worth
$3.216 billion during the year ending April 2015. This, plus $4 billion
and some $2.6 billion import bills for capital goods and consumer goods,
have hit the local currency hard and raised the cost of living.

Already, the prices of consumer goods such as sugar and rice have been
on the rise in the past few weeks, with a kilogramme of sugar going for
Sh2,700 while that of rice fetches up to Sh3,000.

To add insult to injury, Parliament has approved
the 2015/2016 budget in which the government intends to collect an
additional Sh100 (Sh50 as fuel levy and diesel, plus another Sh50 as
fuel and road tax) on every litre of petrol and diesel, which can only
make life more difficult for millions of Tanzanians.

The extra Sh100 on a litre of each of the two
products means that, in the next two weeks, consumers will pay between
Sh2,066 and Sh2,125 depending on how close they are to the port of Dar
es Salaam and assuming that all other variables--including the
free-falling shilling and appreciating global prices--remain constant.

The government is already pocketing a good chunk
of what Tanzanians pay to purchase a litre of petrol, diesel or
kerosene.

A breakdown of the data used in arriving at Sh1,966 as cap
price for a litre of petrol that a Dar es Salaam resident pays now shows
that the government and its various agencies account for close to half
of the amount.

For instance, the government is already pocketing Sh652
of the Sh1,966 in the form of direct taxes while another Sh18 goes to
local authorities and executive Agencies. Some Sh14.92 is taxed in the
form of Wharfage and VAT and another Sh4.80 is lost through customs
processing fee. The Tanzania Bureau of Standards gets a Sh1.24 share
while regulators get a Sh6.10 portion as another Sh0.20 goes as Tiper
fee and VAT.

It is against this background that Tanzania Truck
Owners Association (Tatoa) issued a statement arguing that the higher
fuel levy will reduce the competitiveness of Tanzania’s transporters in
Sub-Saharan Africa.

“Our competitors in South Africa, Namibia,
Mozambique, Zambia and in other countries enjoy a more favourable
business environment,” says a statement from Tatoa.

“The removal of tax
relief and imposition of fuel taxes will effectively reduce the ability
of the Tanzanian road transporter to compete with their regional
counterparts.”

According to Tatoa, the new tax raises
transporters’ fuel bills by a staggering Sh34.947 billion. “The rise in
taxes and levies on fuel is expected to raise transport costs for truck
owners by a whopping Sh103.137 billion,” the group said in a recent
statement.

The statement reads: “Our fuel is imported using
the US dollar, that has risen by more than 13 per cent in the past
month, by 19 per cent over the past three months, by 33 per cent over
the past year, and by 54 per cent over the last five years. The stronger
dollar takes away any advantages we would have gained as a nation from
the falling fuel prices.”

This cost will inevitably translate into
higher transport costs and will be passed on to the final consumer both
in Tanzania and the hinterland countries that use the Dar es Salaam Port
as their gateway to international trade.

But, winding up the budget debate yesterday, Ms
Mkuya told the National Assembly that the government could do nothing to
control the freefall of the local currency. It also has no way to stop
collecting an additional Sh100 from fuel sales, claiming that the
government needs the money to distribute electricity to rural areas even
as power is still a major challenge even for some urban residents.

The Tanzania shilling is leading other East
African currencies in the free-fall trend. It has depreciated by at
least 26 per cent since January 2015. The Uganda shilling has since
January depreciated by 20.9 per cent while Kenya’s shilling and Rwanda’s
franc have lost by 10.9 per cent and 5.1 per cent respectively.

Kenya’s Central Bank has sold dollars worth
billions of shillings in recent months and raised its benchmark lending
rate from 8.5 per cent to 10 per cent in June to support the currency.

In Tanzania, government officials are keeping
their fingers crossed in the hope that some $800 million (about Sh1.76
trillion) from Rand Merchant Bank and China Development Bank will
bolster foreign exchange reserves and shore up the weakening currency
and plug the budget deficit.